Marriott International and Starwood Hotels & Resorts Worldwide have announced that the boards of directors of both companies have unanimously approved a definitive merger agreement under which the companies will create the world’s largest hotel company.
The transaction combines Starwood’s leading lifestyle brands and international footprint with Marriott’s strong presence in the luxury and select-service tiers, as well as the convention and resort segment, creating a more comprehensive portfolio.
The merged company will offer broader choice for guests, greater opportunities for associates and should unlock additional value for Marriott and Starwood shareholders.
Combined, the companies operate or franchise more than 5,500 hotels with 1.1 million rooms worldwide.
The combined company’s pro forma fee revenue for the 12 months ended September 30th, 2015 totals over $2.7 billion.
Under the terms of the agreement, at closing, Starwood shareholders will receive 0.92 shares of Marriott International Class A common stock and $2.00 in cash for each share of Starwood common stock.
On a pro forma basis, Starwood shareholders would own approximately 37 per cent of the combined company’s common stock after completion of the merger using fully diluted share counts as of September 30th, 2015.
Total consideration to be paid by Marriott totals $12.2 billion consisting of $11.9 billion of Marriott International stock, based on the 20-day volume weighted average price of Marriott stock ending on November 13th, 2015, and $340 million of cash, based on approximately 170 million fully diluted Starwood shares outstanding at September 30th, 2015.
Based on Marriott’s 20-day VWAP ending November 13th, 2015, the merger transaction has a current value of $72.08 per Starwood share, including the $2 cash per share consideration.
Starwood shareholders will separately receive consideration from the spin-off of the Starwood timeshare business and subsequent merger with Interval Leisure Group, which has an estimated value of approximately $1.3 billion to Starwood shareholders or approximately $7.80 per Starwood share, based on the 20-day VWAP of Interval Leisure Group stock ending November 13th, 2015.
The timeshare transaction should close prior to the Marriott-Starwood merger closing.
Marriott expects to deliver at least $200 million in annual cost savings in the second full year after closing.
At the same time, Marriott expects the transaction to be earnings accretive by the second year after the merger, not including the impact of transaction and transition costs.
Earnings will benefit from post-transaction asset sales, increased efficiencies and accelerated unit growth.
Arne Sorenson, president, Marriott International, said: “The driving force behind this transaction is growth.
“This is an opportunity to create value by combining the distribution and strengths of Marriott and Starwood, enhancing our competitiveness in a quickly evolving marketplace.
“This greater scale should offer a wider choice of brands to consumers, improve economics to owners and franchisees, increase unit growth and enhance long-term value to shareholders.
“Today is the start of an incredible journey for our two companies.
“We expect to benefit from the best talent from both companies as we position ourselves for the future.”
One-time transaction costs for the merger are expected to total approximately $100 to $150 million. Transition costs are expected to be incurred over the next two years.